European Bonds Slump on Tracking Firm Crude

European Bonds Slump on Tracking Firm Crude

5 May 2016, 12:17
Roberto Jacobs

European Bonds Slump on Tracking Firm Crude

The European bonds slumped on Thursday as investors cooled on safe-haven assets amid gains in riskier assets including stocks and oil. The benchmark German 10-year bonds yield, which is inversely proportional to bond price rose 1bps to 0.215 pct, French 10-year bunds yield climbed 2bps to 0.585 pct, Italian equivalents jumped 3bps to 1.514 pct, Spanish 10-year bonds yield inched higher 3bps to 1.617 pct and Portuguese 10-year bonds yield rose 7bps to 3.216 pct, Netherlands 10-year bonds yield moved up 1bps to 0.454 pct, British 10-year bonds yield rose 1bps to 1.535 pct by 0900 GMT.

The European bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the European Central Bank's target. Today, Oil prices jumped by more than 2 pct in early trading on Thursday as a huge wildfire in Canada disrupted its oil sands production, while escalating fighting in Libya threatened the North African nation's output. The International benchmark Brent futures rose 2.49 pct to $45.70 and West Texas Intermediate (WTI) climbed 3.17 pct to $ 45.17 by 0900 GMT.

Moreover, the European Central Bank in its latest economic bulletin concluded that it is crucial to ensure that the low inflation environment doesn't get entrenched via second-round effects on wage or price-setting. Further added that they will monitor the inflation outlook and if warranted act by using all available instruments.

On the other hand, the gap between Italian and German government borrowing costs hit its widest level in 9-weeks on Thursday after Rome announced an unscheduled bond exchange and investors braced for a series of upcoming political events in Europe.

"Looking forward there is a bit of supply to be absorbed this week and market sentiment is we are cautious on the direction for the periphery and expect more volatility," says Antoine Bouvet from Mizuho Corp. Bank in a research note to Reuters.

Meanwhile, the pan-European STOXX 600 index was up 0.69 pct and the euro-area blue-chip gauge, the STOXX 50 climbed 0.81 pct. The FTSE 100 Index rose 0.51 pct, the DAX trading 0.74 pct higher and the CAC-40 jump 0.40 pct by 0900 GMT.

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